Baba Ramdev’s Patanjali Ayurvedic Products: Serving, Profitably?
“This is just the beginning. Nestlé, Hindustan Unilever and Colgate-Palmolive will be left clueless eventually.”
Modern trade changed the way Indians shopped in the 1990s, then e-commerce and online shopping made way during the 2000s. This time around, it was Patanjali Ayurved Limited (PAL) – the latest disruptive force in the Indian FMCG sector – started in 2006 and grown exponentially since then. After clocking a sale of ₹5,000 crore ($744 million) in 2015–2016 with a growth of 150% over previous year, Baba Ramdev’s (Ramdev) PAL was targeting ₹10,000 crore revenue in 2016–2017. PAL, that started only a decade back, became a FMCG giant and grew ten times in size in the last 5 years – an unprecedented feat in India’s FMCG sector. Relying on ‘Brand Ramdev’, pitching its products as swadeshi (indigenous), using technology for mass quality production and adhering to traditional ayurvedic ingredients, PAL’s products overshadowed the offerings of all other FMCG companies in the Indian market.
The set revenue target of 2016–2017, if achieved, would put the company ahead of multinational giants like Nestlé, Colgate-Palmolive and Procter & Gamble. In addition, Ramdev has set a very ambitious sales target of reaching of ₹1 trillion ($14.9 billion) by 2025–2026, a 20-fold increase from the current numbers. The target represented a third the size of the current Indian packaged consumer products market (₹3.2 trillion). Even HUL, present in India since 1888, could not reach one-third of PAL’s set target for 2025–2026. While the industry experts agree to the fact that PAL would be a major threat to domestic and global FMCG rivals alike, the company was facing numerous controversies and concerns that seemed to hamper its growth.............
Indian FMCG Market: The Landscape
Growing annually at about 12% over the last decade and an overall market size of $185 billion in 2015, of which the branded market is $65 billion, the FMCG sector forms the fourth largest sector in the Indian economy. Food products was the leading segment, accounting for 43% of the overall market share followed by personal care (22%) and fabric care (12%).
Growing awareness, easier access, changing demographics, increased disposable income and lifestyles have been the key growth drivers for the consumer market. Rural areas too were expected to be major growth drivers for FMCG – they experienced 16% growth as against 12% of urban areas in 2015...............
New Age Indian Consumer and Natural/Herbal/Ayurvedic FMCG Sector
The presence of natural/herbal/ayurvedic category of products and brands in the Indian FMCG market is not a new phenomenon, but off late the category had expanded rapidly. During 2015, the size of the Indian ayurvedic market was ₹5000 crore, it had been growing consistently at a rate of 10%–15% and was expected to grow at the same rate for the next 10 years. It was also expected to become a $5 trillion10 market globally by 2050, of which large portions would be centred in India (being the origin for ayurveda) with a host of...............
Baba Ramdev, Yoga, Ayurveda and Patanjali
Swami Ramdev, popularly known as Baba Ramdev (aka Ramkrishna Yadav), has been known for his efforts to popularize yoga through his mass yoga camps. He was born in Alipur, Haryana in 1965. He attended school until eighth grade and then joined gurukul in Khanpur to study yoga and Sanskrit. He renounced worldly life to become a sanyasi (monastic living), taking on his present name and spent many years of his life studying ancient Indian scriptures, practicing meditation and self-discipline and teaching Yoga and Pranayama...............
Patanjali Cooks a New Indian FMCG Recipe
It is a tiny store, unlike the fashionable upscale showrooms, without any fancy lights, glass panels or even an attractive signboard. Bottles, packets, cartons, etc., were stacked on iron shelves along the walls of the store and few in the middle of the room. The store itself was tucked away in one corner of the busy market street or in the by lanes of a residential area, with a sales representative sitting in front of a wooden table in the corner of the room giving the feel of a 1980s shop.............
Patanjali Ayurved Limited
The brainchild of Ramdev, Patanjali had its beginnings in the form of a small pharmacy (Divya Pharmacy) with a small-scale manufacturing unit in the premises of the KripaluBagh Ashram in 1995, formed to provide quality ayurvedic medicines to people suffering from various diseases. Later, on January 13th 2006, it was shaped as a Private Limited Company, and subsequently converted into Public Limited Company on June 25th 2007. Divya Pharmacy was the manufacturing unit of Patanjali Ayurved Limited..............
Manufacturing and Quality
As a part of an initiative by the Ministry of Food Processing Industries (MoFPI) to set up a food park in every state to encourage entrepreneurs, PAL’s manufacturing facilities, in PFAHPL, were established. A Special Purpose Vehicle (SPV) developed the basic infrastructure required for an agglomeration of food processing industries. PAL’s PFAHPL, opened on January 5th 2010, was the result of this initiative headed by Balkrishna and MoFPI’s SPV..............
Revenue and Growth
With quality products being produced and marketed, PAL’s sales grew from ₹162 crore in 2009 to ₹5,000 crore in 2015 with a CAGR of 63% (Exhibit V), which put PAL at par with companies like Emami (₹2,217 crore22 net revenue in 2014-15) and Marico (₹5,733 crore in FY201523). Moreover, as of 2016, it was a zero-debt company. Milind Sarwate (Sarwate), CEO of Increate Value Advisors, an advisory firm...........
Distribution and Retail
How did PAL achieve this feat with just 4,000 distributors, 10,000 stores, 100 Patanjali-branded stores and supermarkets25 and other stores, which display its products, and without any advertising? “We never had a business plan,” declared Balkrishna. “We also don’t know markets or marketing. But what we know is serving the people by providing them high-quality products at attractive prices”, he added.............
Marketing
As Balkrishna claimed, all this could be achieved without a business plan but not without ambition. “In five years, I will take swadeshi products of Patanjali to such great heights that foreign companies will dwarf in front of them,” declared Ramdev. A no empty threat it is. Again, he announces his selfless intentions behind PAL offerings. He insists...........
Advertising
Matters at PAL had begun to change by the end of 2015 as the company had roped in advertising companies like DDB Mudra North and Vermillion to promote its products. Vermillion handled all Patanjali product ads barring three – ghee, noodles and Dant Kanti – that were handled by DDB Mudra North (Exhibit VIII). As of June 2016, the TV Commercials for Kesh Kanti, Aloe Vera and Amla Juice, honey, Chyawanprash and biscuits are on air..............
Investments – R&D and Manufacturing
Apart from branding and marketing, PAL also had the ability to keep investing in the Research and Development (R&D) of new products and installing new facilities and technologies, that helped it in keeping up with the ever-increasing demand. While the company says that the banks were more than willing to help in its expansion, it was also financially strong because of the cash that yoga brought in.............
Controversies and Concerns
Controversies – Tax Evasion
In 2004, Divya Pharmacy had showed a sale of only ₹6,73,000 and paid sales tax of ₹53,000, while there was huge demand for its medicines all over the country and were sent through Value Payable Post (VPP) – valued ₹13,13,000; it also received Money Orders worth ₹17,50,000. Around 2,509 kg of medicines were dispatched through 3,353 parcels..........
Controversies – Medicine Stock Transfer
Tax evasion was one way of siphoning money. In the same year, the Pharmacy transferred medicine stocks worth `30,17,000 to other Ramdev’s organizations and trusts and claimed that the medicines were distributed to the poor and needy........
Controversies – Land Grab
Apart from these, the trusts owned by Ramdev purchased huge tracts of land in Haridwar, Aurangabad, Shivdaspur, Mustafabad, Dhanpura, Ghissapur, Rani Majra and Ferupura Maujo and adjoining districts through benami transactions, where PYT, PFAHPL and Patanjali university were constructed. In July 2008......
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PAL’s Concerns
Manufacturing, Distribution & Retail
There is a huge gap between demand and supply, even though there are numerous PAL stores and modern retail stores displaying its products, in addition to the convenience of e-commerce. Vijay Udasi, SVP – Sales Effectiveness Practice, Nielsen India, said, “Modern trade only forms ~10% of the FMCG sales pie and not more than 1% of Indian consumers buy FMCG..........
Risk of Brand Ramdev
Another potential problem is that the company is able to find and add buyers because it had become synonymous with Ramdev and his brand image, which experts term as a ‘risky’ proposition. If the personal brand is tarnished or the person ceases to exist or...........
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India’s Regulatory Framework
Ramdev’s business strategies were having disconnect from the country’s business regulatory framework. For instance, the law on ‘collective investment schemes’ (to the extent of ₹100 crore), would deter crowd-funding for a business idea that clearly says it is a business seeking money, and also a business is expected to promise returns..............
Competition and Competitors Response
Amidst these controversies, PAL found an admirer in the form of Credit Lyonnais Securities Asia (CLSA), which wanted it to be listed, despite it straying away from most of the professional marketing ingredients that were key for building a large-scale consumer goods business and which was still giving competition to the industry’s big players...........
Exhibits
Exhibit I: Top 10 FMCG Companies of India – 2016
Exhibit II: Patanjali’s Institutions and Trusts
Exhibit III: Patanjali Stores
Exhibit IV: PAL’s Production Units and Employment Generation
Exhibit V: PAL’s Growth
Exhibit VI: PAL’s Product Pricing Compared to Rivals
Exhibit VII: PAL’s Print Ads Featuring Ramdev
Exhibit VIII: PAL’s Ads by DDB Mudra North
Exhibit IX: PAL – Gaining Ground
Exhibit X: Yoga Gram
Exhibit XI: PAL’s Share of Kirana Store Universe in India
Exhibit XII: PAL Under Regulatory Scanners
Exhibit XIII: Competitors Preparing to Put Up a Fight
